02 Introduction.html

<p>Mean Reversion Trading is the process of trading assets or relationships that deviate from the long-term mean in hopes that the prices revert to the long term mean. There are several methods and models to carry out mean reversion, including using Moving Average crossovers. Furthermore, <a href="https://www.investopedia.com/terms/p/pairstrade.asp">Pairs Trading</a> is simultaneously going long on one stock while shorting another, and it is a form of Mean Reversion as Pairs Trading is the process of going opposite of the direction of the spread in hopes that the spread will revert to the mean. In our <a href="https://www.quantconnect.com/tutorials/strategy-library/optimal-pairs-trading">Optimal Pairs Trading</a> strategy, we model the spread as an Ornstein-Uhlenbeck process to find the optimal levels to buy and sell the pair. However, Pairs Trading is a form of <a href="https://www.investopedia.com/terms/s/statisticalarbitrage.asp">Statistical Arbitrage</a>, so like all other forms of Arbitrage, the opportunity is whittled away as more participants employ the strategy. Thus, in this strategy, we extend the concept of Pairs Trading to more than two stocks; we construct a basket of several securities that we long and short in an attempt to create a mean-reverting portfolio. Specifically, we use Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), and Litecoin (LTC), four cryptocurrencies, for our portfolio.</p>